U.S. ethanol makers, taking advantage of low corn prices, are ramping up production and expanding capacity to try to squeeze less-efficient competitors out of an overcrowded market.
The ethanol industry, which for years bolstered corn prices and U.S. farming, faces saturated domestic demand and lost exports as trade wars bite into the global market.
But U.S. producers have added more capacity in 2017 than in any of the previous six years and hit record output levels – and there is more to come.
“There’s only two speeds – there’s full throttle or off,” said Randall Doyal, chief executive officer of Al-Corn Clean Fuel in Minnesota. His company, which accounts for about 1 percent of total U.S. ethanol production, is three months ahead of schedule to double annual capacity to 120 million gallons by early 2018. “We are going to oversupply the market,” he said.
Since 2007, nearly every gallon of gasoline sold in the United States is mixed with about 10 percent ethanol as part of a mandate enacted to reduce dependence on foreign oil and boost use of renewable fuels.
Doyal said the expansion would increase fixed costs only slightly, enabling more profit per unit from higher volumes.
The top U.S. ethanol producer, Archer Daniels Midland Co, is also wielding its volume power. “We’ll probably run our plants to maximize yield,” Chief Executive Officer Juan Luciano said last month on a conference call with analysts. ADM can produce about 1.8 billion gallons annually – more than total U.S. exports last year.
The United States currently has production potential of about 16.3 billion to 16.4 billion gallons a year, according to producers and analysts, up from roughly 15.2 billion in 2016. That is more than enough to cover the call from the domestic market, which should be about 15 billion gallons in 2018, according to requirements from the Environmental Protection Agency.
Production hit 1.060 million barrels a day (44.52 million gallons) at the end of August, close to the all-time high touched at the end of January.
THIN MARGINS, HIGHER YIELDS
Average margins in the top ethanol state of Iowa hit a 2017 high of 30 cents a gallon in August. That was less than a third of the record highs seen in late 2014, despite corn prices near one-year lows. Efficiencies have boosted yields only slightly, to 2.91 gallons from a bushel of corn from 2.84 gallons last year, according to the Renewable Fuels Association.
Exports, which sucked up much of the oversupply last year at 1.17 billion gallons, were up 30 percent in the first seven months of this year to 803 million gallons.
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